Class 6: Sources of Competitive Advantage

MG106 Strategic Management

José Ignacio González Rojas
j.i.gonzalez-rojas@lse.ac.uk

London School of Economics and Political Science

July 1, 2025

Today’s Roadmap 🗺️

Three Key Questions

1️⃣ What have been Apple’s sources of competitive advantage?

2️⃣ Is the PC industry attractive? What are the dynamics?

3️⃣ How sustainable is Apple’s position in PCs? Smartphones? iPads?

We’ll explore: Resources vs Capabilities • VRI Framework • Industry Analysis

First, Let’s Define Our Tools 🔧

What creates competitive advantage?

Resources vs Capabilities

Building Blocks of Competitive Advantage

Resources (What firms HAVE)

  • Tangible: Apple stores, cash, patents
  • Intangible: Brand, iOS platform
  • Human: Jony Ive’s design team

Capabilities (What firms can DO)

  • Design excellence
  • Rapid innovation cycles
  • Ecosystem integration
  • Supply chain mastery

Key Insight: Resources + Capabilities → Competitive Advantages

Not just product features!

The VRI Framework

When Do Resources Create Sustainable Advantage?

Valuable: Does it help exploit opportunities or neutralize threats?

Rare: Do few competitors possess it?

Inimitabile: Is it hard to copy or substitute?

All three conditions must be met for sustainable advantage

Question 1: Apple’s Sources of Competitive Advantage

Let’s Identify Apple’s Resources 🍎

Discussion Time

What resources and capabilities has Apple developed?

Think tangible, intangible, and human

Apple’s Resource Portfolio

What We Found

Resources:

  • Premium brand (intangible)
  • Retail network (tangible)
  • Patents & IP (intangible)
  • Design team expertise (human)
  • User data & installed base (intangible)

Capabilities:

  • Hardware-software integration
  • Creating “magical” user experiences
  • Building ecosystems
  • Persistent innovation culture

But which ones are sources of sustainable advantage? 🤔

Applying VRI to Apple

Let’s Test Each Resource

Resource/Capability V R I Result
Beautiful design ✓ ❌ ❌ Temporary advantage
Premium brand ✓ ✓ ✓ Sustained advantage
Retail stores ✓ ❌ ❌ Competitive parity
Ecosystem lock-in ✓ ✓ ✓ Sustained advantage
Innovation culture ✓ ✓ ✓ Sustained advantage

Notice: Product features ≠ sustainable advantages

Understanding VRI Better

Why Some Resources Fail the Test

Beautiful Design (V✓ R❌ I❌)

  • Valuable: Yes, customers pay premium
  • Rare: No, Samsung/others have great design
  • Inimitable: No, can hire designers

Ecosystem Lock-in (V✓ R✓ I✓)

  • Valuable: Creates switching costs
  • Rare: Few have such integration
  • Inimitable: Network effects + time + trust

The difference? Time, complexity, and path dependence

Question 2: PC Industry Analysis 💻

Is This an Attractive Industry?

Time for Five Forces

Let’s analyze the PC industry dynamics

What forces shape profitability?

PC Industry Reality Check

Verdict: Terrible Industry

Suppliers capture most value (~$20B) vs manufacturers (~$12B)

Question 3: Sustainability Analysis 🛡️

Apple’s Challenge in PCs

The 1990s Crisis

What happened?

  • Margins collapsed: 53% → 10%
  • Windows narrowed the gap
  • Developers fled (small installed base)
  • OS economics: $1B cost ÷ 11M users (vs Windows 100M+)

Jobs’s Response:

  • Intel switch (perfect timing - iPod covered risk)
  • Premium positioning (owns 91% of >$1000 laptops)
  • But still <5% overall share…

Can this last?

Beyond PCs: Sustainability Check ✓

Different Products, Different Futures

Product VRI Analysis Key Threat Outlook
Mac Ecosystem helps, but… Bad industry Niche player
iPod iTunes lock-in eroding Streaming, phones Declining ⬇️
iPhone App Store = new ecosystem Android Strong… for now ✓
iPad Too early Unknown ???

Pattern: Ecosystems matter more than products

The Evolution of Apple’s Advantage

From Products to Platforms

Key Learning: Must create new competitive space, not just better products

Synthesis: What We’ve Learned 🎓

Core Insights from Apple

About Resources

✓ Features ≠ Advantages

✓ VRI test is strict (most fail)

✓ Capabilities > Resources

✓ Time creates inimitability

About Strategy

✓ Industry structure matters

✓ Change the game, don’t just play better

✓ Ecosystems > Products

✓ Timing is critical

Bottom Line: Sustainable advantage requires resources that are V + R + I

Your Predictions? 🔮

Looking Ahead from 2010…

Bear Case 🐻

  • Android’s open model wins
  • Carriers revolt against Apple
  • Innovation slows post-Jobs

Bull Case 🐂

  • Ecosystem too strong to break
  • Brand commands premium forever
  • Innovation culture persists

What matters most: Can Apple keep creating new V-R-I resources?

For Tomorrow 📚

Prepare: Uber vs. Didi

Focus Questions:

  • What is Uber’s innovation?
  • Why did they fail in China?
  • When do global strategies work?

Think: Can you copy-paste success across borders? 🚗